How to Identify Which Problems You Should Tackle First in Your Business

 

 How to Identify Which Problems You Should Tackle First in Your Business BW

Pareto Analysis

Commonly referred to as the “80/20” rule, unlike a general decision-making technique, the Pareto analyses is fantastic for deciding where to focus your energies to achieve the maximum outcome. It works on the principle that 80% growth can be achieved by focusing on 20% of the challenges.

Anyone who has a desire to grow their area of business should frequently run a diagnostic of the major problems that inhibit growth. Once these major problems are identified, the Pareto Analysis will help identify which problems to tackle first to achieve optimum results.

Background

“In the late 1940s Romanian-born American engineer and management consultant, Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population. Pareto later carried out surveys in some other countries and found to his surprise that a similar distribution applied.”1

This principle can be applied to any facet of your business, not just identifying problems, but a general trends such as 80% of the sales result from 20% of sales activities, and that 20% of your services produce 80% of profits. You will discover a consistent pattern, and it is very useful for identifying where to invest your time to achieve rapid growth.

In this guide, we can use the Pareto Analysis to diagnose weaknesses within your organization like quality control. Correctly identifying the problems (and their relative magnitude) is the big advantage. Then problem-solving can take place, and other tools like the decision matrix can be used to choose the optimum solution.

The process of Pareto Analysis2.

  1. The first step is to evaluate all the issues causing disruption to your business. Counter to the well-used saying “focus on the solution, not the problem”, you need do the opposite. Try to make a list of at least 10 problems to ensure the best result.
  2. Next, you score the problems against each other. There are two methods to this, depending on the type of problem.
    1. If your problem is a repeated issue (e.g. bad customer reviews on a particular services or products), then you can count the number of occurrences of each problem. The higher the score, the bigger the problem.
    2. Alternatively you problems may not be repeated issues, but broader standalone problems (e.g meeting this year’s OHS requirements to maintain certification for practice). Problems like these are best categorized in potential harm/threat they present to the business. In this case, simply sore the problems more harmful and likely higher.
  3. Plot each problem on a bar graph (See figure 1) and arrange them in order from most significant to least (highest to lowest score). Now you can see which problems are a priority. You may find that some problems are the root cause of other problems in your list. It’s important to score root problems higher than their symptoms. For example a faulty social media link may be the root problem to other issues like dissatisfied customers, bad reviews and decreased sales.

Graph 1

In this example the problems not only been scored in order of threat, but by root cause. Even though cross-infection of patients is a huge priority, poor hygiene practices implemented in the facility are the root cause of cross-infection and resulting bad reviews. Thus the scores of poor hygiene and cross infection have been altered to reflect this. This particular analysis could actually be improved by recognizing that meeting accreditation results in demonstrating good hygiene practices and low patient score, and perhaps adjusting the scores of both to prioritize hygiene.

Graph 2

Finally recognize that you cannot solve them all at once. Notice that you can evaluate the size of each problem. It’s likely that approximately 20% of your problems will occupy 80% of the volume of space occupied by your bars. Remember that the ParetoAnalysis axiom is that focusing on 20% of the problems can result in 80% growth. Now you know where to start directing your time and resources.

References:

  1. Duncan Haughey https://www.projectsmart.co.uk/pareto-analysis-step-by-step.php
  2. Cagle, R. B. (2003) ‘8.2 Evaluation Techniques’, in Blueprint for Project Recovery--A Project Management Guide. American Management Association International, pp. 178–186. Available at: http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=32398008&authtype=sso&custid=deakin&site=eds-live&scope=site (Accessed: 4 September 2019).

 

GENERAL ADVICE WARNING

This content has been prepared to provide you with general information only and has not taken into account your personal objectives, financial situation or needs. It does not contain and it is not to be taken to contain Personal Financial Advice. Before making any financial or investment decisions, you should seek advice from an appropriately licenced or authorised financial advisor.

The content was prepared by UHY Haines Norton. AFS Licence No. 483056


FACTUAL INFORMATION WARNING

This content has been prepared to provide you with factual information only and has not taken into account your personal objectives, financial situation or needs. It does not contain and it is not to be taken to contain Personal Financial Advice. Before making any financial or investment decisions, you should seek advice from an appropriately licenced or authorised financial advisor.

The content was prepared by UHY Haines Norton. AFS Licence No. 483056

Darren Laarhoven

Chartered Accountant

Managing Partner specialising in Probity Advise and Auditing, Not-For-Profits, Trust Accounts, and Due Diligence.

Phone: +61 (07) 3210 5522

LinkedIn: linkedin.com/in/darrenlaarhoven

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Website: uhyhnbrisbane.com.au 

 

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